Checking the market’s temperature with Bain’s Ajay Agarwal

Ajay Agarwal leads the West Coast team for Bain Capital Ventures, which he joined 13 years ago. Because he he has seen some market zigs and zags, we met him for coffee this week to talk about what he’s seeing in the market right now. Our chat has been edited for length.

TC: Bain Capital Ventures opened its first office in the Bay Area five years ago. Now you have an office in Palo Alto, and you’re moving into a bigger office soon in San Francisco. How many of your partners are here now, and how many of your startups are in SF versus south of the city?

AA: It used to be that 90 percent of our team was on the East Coast, in Boston and New York, and 10 percent was here, but it’s about 50/50 at this point. And I’d say 40 percent of our [Bay Area] startups are south. There are a lot of machine learning companies in Sunnyvale and Mountain View and Los Altos, and that’s a big area of interest for us right now.

TC: What’s one new, related investment that might interest readers?

AA: Trooly, whose team comes from LinkedIn. If you think about it, we have all these peer-to-peer marketplaces bringing together strangers, whether they are drivers or babysitters. But the state of the art — background checks — is a flawed process. A lot of information has been digitized, but there are still plenty of counties where, if you’ve committed a crime, they’ll have a physical record alone. So you’d have to send a courier to all of the places where someone has lived to get the information you need, which is expensive.

Meanwhile, Trooly can figure out much more about someone and do it quickly using data science and machine learning. It can figure out any content that has been written by you or about you and whether it’s in any way objectionable. It can verify if the information you send someone is accurate and distinguish between a typo and whether you’re trying to fool someone [on an application]. For every person who fails a background check, we find a person who passed a background check and should not have.

AA: We’ve backed Rent the Runway and Jet.com, in part because we’d gotten to know the founders [earlier in their careers]. We also have a lot of experience in e-commerce technology, having funded numerous companies that are almost arms dealers to next-gen e-commerce players. We were in the A round for Kiva, for example [the warehouse robotics company acquired by Amazon in 2012].

TC: It’s interesting that you do so much early-stage stuff. I think people view Bain as a slightly later-stage investor because of Bain Capital, a private equity firm with which you share LPs but that’s run separately.

AA: Yes, we’re totally separate, and half of what we do is early stage; the other half is growth stage. We’re run very autonomously, though we get a huge benefit from being part of the Bain network. Those connections into companies is massive. When Kiva had six terms sheets and was trying to determine who to pick, we introduced the company to the head of distribution at Staples, who said Staples was likely to become a customer and became one six months after we invested.

TC: I’m sure that’s a useful pitch to entrepreneurs. Do you feel like you need to sell them as hard on your firm as in recent years? Broadly speaking, do you think VCs are in the driver’s seat right now?

AA: The best entrepreneurs still have lots of choices. The deals we’re pursuing are still very highly competitive. What has changed are valuations expectations are more reasonable. Before, a lot of terms sheets were happening in days, too. Now, it feels like a couple of weeks.